We use cookies to ensure we give you the best experience on our website. You can find out about our cookies and how to disable cookies in our Privacy Policy. If you continue to use this website without disabling cookies, we will assume you are happy to receive them. Close.

(b) subject to subsection (2), the term purports to confer a benefit on him.'

It is to be noted that the right created is to enforce a term of a contract, not the whole contract itself. For example, if a building contract contains a term that the contractor is required to use materials of good quality, then that term might be the subject of a third party enforcement right, subject to the other requirements for the existence of the right being met.

There are two categories of potential third parties given this new right.

The first category, where the contract expressly confers the right, would permit, for example, the express selection of certain terms of the contract and make them enforceable by named third parties.

The second category is where the term of the contract 'purports to confer a benefit' on the third party, but this is subject to the provisions of section 1(2) of the Act which states, 'Subsection 1(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.’

As answering a particular description, but need not be in existence when the contract is entered into.

It is clear that members of a class or answering to a particular description could create very wide categories of third parties in construction. For example, these categories could include purchasers (not limited to a first purchaser) and tenants (not limited to the first tenant or first assignee), even though the names of those parties were not known at the date of contract and even though they were not in existence at the date of contract.

The Act goes some way, once a third party right to enforce a term has arisen, to prevent the contracting parties agreeing to rescind or vary the contract in such a way as to extinguish or alter the rights of a third party, unless the third party consents in certain circumstances. Those circumstances are:

Where the third party has communicated his assent to the term to the promisor

The promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.

Clearly this provision requires careful consideration of the drafting of the contract from the outset. The use of clauses permitting the varying of the contract by the contracting parties without the consent of any third party might be considered but may well fall foul of this section of the Act. A safer alternative might be a contract provision that where a third party's consent is required under section 2 of the Act, then such third party shall not unreasonably withhold or delay his consent.

The Act, subject to any express terms of the contract, reserves to the promisor, in any enforcement of a contract term by a third party, the same defences and/or set-off rights that the promisor would have had available to them if the proceedings had been brought by the promisee. This provision may come as a surprise to third parties who might otherwise have thought they had a clear run at a third partyclaim, without the risk of being met by such defences and set-offclaims by the promisor.

At the same time, there is protection of the promisor from double liability. If the promisee has already recovered a sum in respect of the third party's loss in respect of the relevant contract term, then the third party's damages are reduced by an amount that the court or arbitral tribunal think is appropriate.